MB dolts come close to knowledge of house pricing; veer hard left to avoid encounter

Those bloody MB guys seem to never learn.

As they stare at decades of obvious and well documented action-consequence situations.

As they ignore everything written in even the most basic beginner-level finance books.

Even as they personally pen the headlines that plainly paint the picture….they can’t quite make out the shape of things!

The shape of things that says “interest rates dictate asset price levels for any given level of supply”.

And again up goes the cry of “lower teh rates/print teh money/fiscal stimulus” , moderated only by the same tired, weak bleating of MPLOL.

Those fucken guys! The only minor saving grace is that they seem to have finally given up the “pushing on a string” stupidity.

So, has anything changed recently, or is anything about to change? Let us canvass the landscape:

  • Election is coming up
  • borders about to be opened (could outflows be greater than inflows??)
  • Iron ore is high, but not as high as it has been recently
  • covid is no longer a thing (in the minds of most normal people)
  • homebuilder supply lump coming online soon
  • astrological omens are poor

For mine, the key thing to watch is the dynamics about border reopening. Whether there is a rush out or a rush in will determine the short-to-medium term trajectory.

I can imagine there being a net outflow out in the short term, to be followed by the resumption of Normal patterns (inflows on a sustained basis).

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bjw678

astrological omens are poor

Assuming you consulted mb’s resident astrologist bc, aren’t they always poor.

I can imagine there being a net outflow out in the short term,

We don’t really have restrictions on leaving, just on being allowed back in.
The rest of the world seems to have removed restrictions on entry already.
I presume anyone wanting to leave already can.

bjw678

If you are talking macro long term effects, then people who are going to come back really don’t matter much. IMHO anyway.

DictatorDavid

I’ve never understood those dot graphs Silvia (bcn) posts on twitter. Can someone explain it to me?

harry

Who is Sylvia?

Stewie

Her orbs of wisdom are definitely worth looking into.

Coming

god, they are the most infuriating people in the entire world

So grievously wrong for so long, and no acknowledgement that their calls were absolutely awful

Still I’ll be very interested to see where house prices go

Now that MB have given up on the house price falls theory, I think now is probably the time that it is a real possibility

The reason is that they are not very smart. So everything they think is an incredible insight into the market, is already priced in by everyone else.

For me, the issue is that the yields on housing are so poor relative to nearly everything else
So there must be a capital gain for it to be a worthwhile investment
While interest rates can fall, then this will happen

They are similar to bonds (I was laughed at over at embee for suggesting this) – sure buying 10yr at 1.5% seems stupid, until yields fall to 1.25%

However, if we think we are close to the bottom of interest rates (or even if they stay flat), then there is no more capital gains
And therefore housing is a losing and depreciating asset

Coming

No one getting 3% (after costs) where I am
more like <1%

sure it’s shelter but so is a rental (of which there are many to choose from at cheap prices)

it’s particularly stark at the top end

place near me sold for 10m
now rents for 3700/wk
Land tax 100k plus, council rates 10k, maintenance not cheap heritage

Coming

I wouldn’t know if you’re numbers are correct. I don’t concern myself with the lives of the lower class

But one would think that the wealthy people buying 10m homes should be sophisticated and savvy financially

So what are they betting on here

Coming

well, no

this house is not being used by the owner

it has been rented out

there is no hedonic benefit or status obtained by the owner

bjw678

There is no bank guarantee above 250k. You get minimal interest.
Bonds have a significant downside potential if rates go up, some are yielding negatively.
Shares have significant risk, especially if you think they are overvalued.
It is a potential destination to escape your current country should it go pear shaped there. I assume it counts for a significant investor visa…
It is far more convenient and secure than a pile of cash in a safe.

Basically it is somewhere to park money relatively risk free.

I also disagree that owning a 10million house has no status value even if you don’t use it personally.

Coming

i would have thought houses have equally significant downside potential if interest rates go up

bjw678

Possibly. I’m not in the position to buy a $10 million house so take that advice accordingly.
It’s also possible that they are hedging across multiple asset classes.
And finally what doesn’t have downside potential if interest rates rise?

Coming

cash

Last edited 19 days ago by Coming
DjenkA

up to a point… thereafter it is called hyperinflation

bjw678

but where do you store 10 million in cash?
This particular dilemma is what makes negative bond yields a thing that is not completely nonsensical.

Last edited 19 days ago by bjw678
DjenkA

what about parties with Reus?

Did I tell you about that 10mil house i bought last year – now it’s worth 12… that is sure to lay some grounds for instant copulation

bjw678

The bottom end is where yields tend to be better
You will do far better from a cash flow perspective buying 30 300k properties than buying 1 for 10 million.
The 10 mill will probably outperform in capital gains on both the way up and down though.

Coming

Really you’ve entirely missed my point

bjw678

which is?

People buying 10 million dollar houses most likely are not investing for profit. They clearly have a well established income stream already.

DictatorDavid

I was planning on doing a post about current economic happenings and what everyone here was predicting but this post touches on it.

We have Evergrande defaulting, some people saying it will be like Lehman brothers and a Chinese recession. While others saying nothing to worry about if you have no direct exposure to Evergrande and CCP to bail out.

US stock market down and ASX down 2.3% today. Someone here a couple of weeks ago said they moved to cash (interest) with their super, Harry maybe? Might be a smart move?

Then we have all the talk about APRA stepping in to cool a runaway in house prices. Lot’s of excited talk among millennials but given what we’ve seen in the past I don’t expect much more than a wet lettuce leaf. Stagnant house prices at best. Which along with tightened lending standards will still do SFA to help millennials buy a house.

harry

I’ve got maybe 15% in cash, maybe 55% in fixed interest and the rest in international.

Generally, whatever I do is a wrong decision, so I’m just leaving it.

DictatorDavid

I think not having exposure to Australian shares atm isn’t a bad move. Will it go up from here? Who knows but there’s more downside than up. When your Uber driver is giving stock tips it’s probably not the time to buy…

Gouda

We’re leading up to an election, so obviously “talking” about housing affordability is going to be happening. I expect nothing to change, and we’ll have more empty platitudes, hand wringing and inquiries which won’t lead anywhere.

stagmal

even if therre is a ‘crash’, what is that going to do. we’re never going to see the holy grail the macroites have been holding out for, price to income ratios in the capital cities dropping to the levels they were prior to the 2000 olympics. it will never happen, at most a ‘crash’ is gonna drop prices maybe to what they were in like 2015, aka unaffordable to unaffordable, who gives a total rats.

i think a lot of the macroites can afford to buy now, its just that theyre delusional that they’re gonna pick up some sweet little terrace in dulwich hill for the price they’d of paid for it in 1996, they’re just holding out for the crash that’ll make it happen.

Last edited 19 days ago by stagmal
Coming

It will happen if interest rates increase

Coming

Can’t ever say never

the fact that MB has categorically said that they won’t go up is enough for me to consider the possibility is still in play at the very least

Coming

Here’s a question I would like you answer for me Ms Peachy

All this money that has been “printed” and is currently in circulation – where is it?

Who is holding it?

Someone has to.
We know that money cannot be destroyed except by government surplus, or paying down private debt
and neither of those is happening

It certainly isn’t me, or any other upper middle class people I know.
We have debts and “investments”

It certainly isnt the proles. They have after pay and credit cards

So who DOES HAVE all the trillions of dollars (USD and AUD)?

Perhaps it is the very savvy people who are holding dollars now

What are the implications

Last edited 19 days ago by Coming
Coming

I don’t think that answers the question

The RBA doesn’t “print money”
It prints reserves
and gives them exclusively to commercial banks in exchange for the banks bonds

This does increase the price of bonds for all holders yes

But there is no cash delivered to the sellers (they receive reserves which can’t be used for anything but interbank transfers)

The amount of “money” (for which I would not include reserves) in the system doesn’t change

However, when a bank creates a loan, then “money” is added to the system.
That is immediately transferred to the seller of the asset

There is no off-setting bond sale to drain the money from the system
(only a proportionately very small amount to maintain capital ratios, maybe a few % I don’t know exactly)

If private debt is increasing, then the amount of money in circulation (not tied up in bonds as would be the case for government deficit) is also increasing

Who is holding it?
It cannot leave the australian banking system (except a very small amount in notes and coins)

We know that most people have absolutely no savings

Is it really all in offset accounts? I find it hard to believe but I don’t know. Most people are leveraged to the maximum, and wouldn’t do something so silly as leaving a large amount in an offset account when interest rates are 2%

There must be big players with very very large amounts of cash in accounts

Coming

for sure they do

how do they transact with each other otherwise?
how does the RBA set overnight rates?
how does RBA enact QE?

all these things require a reserve banking system

Last edited 19 days ago by Coming
Coming

how do they differ then

https://www.rba.gov.au/education/resources/explainers/unconventional-monetary-policy.html

they just call them “exchange settlement balances”

but they are functionally the same

the point is that the RBA is not “printing money”

Last edited 19 days ago by Coming
Coming

they dont create money – they create ES balances

Coming

Yes ES balances are just tokens that can only be swapped between commercial banks

they can’t be spent in the real economy

they are only used to settle interbank transactions

Coming

they are not convertible

but yes, shifts in AUD balances at commercial banks induce shifts in reserve/ES balances at the RBA

they are a parallel system

We have been over this many many times, but QE is most definitely not money printing

it DOES induce rises in asset prices though (because it pushes down bond rates and interest rates)

Coming

The reserves that the rba gives the banks in exchange for their bonds are not money and cannot leave the reserve system

just because bonds can ALSO be purchased with real money does not mean that the rba is printing money

but yes by removing bonds from the market, the rba causes the price of bonds (in real dollars) to increase (all other things, ie demand, being equal)

Last edited 19 days ago by Coming
Coming

Why would banks want to accumulate reserves ?

what does it get them ?

it isn’t a profit
reserves can’t be distributed to share holders

but if you want to front run the rba there’s nothing to stop any private individual from buying bonds too

Last edited 19 days ago by Coming
Coming

I’m not really sure what you are suggesting here

CBA will “borrow” $6bn of ES/reserves from NAB
and then convert that into $100 bills via the RBA
Then mail those $100 bills out to its shareholders?

Several problems with this
-absolutely the RBA will not allow that. The banks are heavily regulated believe it or not, and there are very strict rules about what they can do with their ES/reserves

-How will CBA get the reserves to pay NAB back? Where will the interest come from? Why would they do this?

-Why would NAB “lend” CBA ES/reserves that it knows it is going to throw away to shareholders? This makes CBA a counterparty risk in any future interbank transactions because it has dubious levels of reserves

-why would NAB wait for QE to do this? Why not just sell its bonds (before they get swapped for reserves) and then distribute the money to shareholders? QE is an asset swap – reserves for bonds. The banks overall position does not change as a result of this manouevre

Coming

ok, but whats stopping them from treating their already held bonds the same way?

My point is that it was only ever an asset swap

The bank gave up bonds, and received reserves in return

If you are suggesting all the ways in which the banks can get reserves out into the real economy, then why couldn’t they do the same thing with their erstwhile bonds

It just proves that QE isn’t money printing, but it is an asset price pump and it spurs borrowing

Coming

no, that’s not correct. you are ignoring the subtleties and nuances which matter

Wealth is created (by asset price rises)

That doesn’t correspond to money. And if everyone tries to cash out their newly found “wealth” they will find that there isn’t enough money available to do so

money is not directly created
BUT, money MAY be created by spurring lending (but that also comes with a corresponding debt/liability)

Coming

anyway, this really gets at what I was driving at before

QE means the reserve bank is gathering real assets,
while the private sector is largely gathering reserves or cash

What has gone up in value? The real assets
What has gone down in value? The cash/reserves

Who is benefiting?

Once the reserve bank has gathered as many real assets as it can, wouldn’t the best way to enrich the private sector be to reduce the value of the real assets (and the central bank takes the nominal loss on its limitless balance sheet), while cash suddenly becomes valuable again?

Who is holding all this cash/deposits ?

Coming

this is not correct

there is no longer a reserve requirement in the US, as of march 2020

https://www.federalreserve.gov/monetarypolicy/reservereq.htm

In any case it made no difference, because the banks were never reserve constrained
They could always get more from the fed or from other banks (hence interest rates)

Coming

you missed it because its irrelevant

banks have never been functionally constrained by lack of reserves
it was an irrelevant rule, thats why they scrapped it

bjw678

So who DOES HAVE all the trillions of dollars (USD and AUD)?

The people selling bonds? The banks in the Reserve bank as capital?
The emm bee story is that savings are at an all time high, and debt has been paid down significantly, so a large chunk of it has probably gone there. I have certainly paid down a heap of debt and have a big chunk of cash reserve compared to a few years ago.

Coming

of course – savings is at an all time high, because private debt is at an all time high

that is how it works

one person’s debt is another person’s deposit

the question is: who is holding the debt, and who is holding the deposit

bjw678

we’re never going to see the holy grail the macroites have been holding out for, price to income ratios in the capital cities dropping to the levels they were prior to the 2000 olympics.

It MAY happen. Do you want to be living here if it does is the relevant question. It will make the 91 recession look like boomtimes if it gets that bad.

stagmal

yes, i’d take it over the current clusterfuck

bjw678

Well, if the government cut centrelink by 50% because recipients tripled you might care.
If 80% of all businesses fail and you can’t buy anything with your schoolteacher salary you might care.
If the AUD collapses in value and all imports end up 10-50 times more expensive without any wage inflation you might care.

It all depends on how you get to that point, but none of the realistic ones I can think of seem like a great place to be.
Even if it is not a global phenomenon I suspect once it gets going it will likely have removed the average persons ability to go somewhere else anyway as a side effect of trashing the entire Australian economy.

DictatorDavid

In other news Glady B has resigned because corruption investigation. Wonder if it had anything to do with Jordy lol

Chinese Astroturfer

Slut

Coming

it should have been dan

Chinese Astroturfer

The Turkish slut is gone. Suicide by cop much like Porter.

Agent 47

Who the fuck cares tbh? They’ll just replace her with the next Davos appointment and it will be back to business as usual, after all the labor supporters have had their circle jerk on Twitter.

T

Everyone just forgot the Christian Porter scandal lol…

Stewie

“Berejiklian was born in Sydney to Armenian parents who migrated to Australia in the 1960s – her mother’s family from Jerusalem and her father’s family from Aleppo.”

Ramjet

It is not just housing, it is most assets. Take CBA for example, DLS says it is overvalued whilst ignoring strong credit growth, TFF funding share buybacks, etc. There is a reason why DLS is a former gold trader.

bjw678

Come on now. Their investment skills are so good they are running a blog begging people to pay them a few hundred a year instead of living off the enormous profits from their previous investment decisions.

Freddy

On DLS. It amazes me that he correctly predicted bond prices rising but couldn’t join the dots on property being another asset linked to interest rates.

On rising interest rates. All central banks have indicated they will let inflation run before raising rates. It essentially means wait for wages to rise adequately to cope with increased debt repayments before raising interest rates. Of course that only works if you simultaneously tighten lending criteria. Is it coincidence that MPlol discussions are centre stage now?… maybe…

If/when we do get wages rising, and interest rates rising soon after, then asset prices will fall in real terms (relative to wages) but not necessarily nominally. The subtle difference is people in debt will not go into negative equity so it will be tolerated.

The end of the housing affordability crisis will lead us into a retirement crisis as all assets (family home, shares in superannuation) fall relative to the cost of living. Which is why is still have my doubts it will ever happen.

Last edited 19 days ago by Freddy
bjw678

It’s not as clear cut as you are saying. Falling real values make a huge difference for someone who owns the asset outright.
For someone who bought with a loan a nominal increase is still a gain even if it decreases in real terms as when you sell the asset you end up where you started + nominal increase in value as a profit, or your payments to hold the asset fall as a percentage of your income.
What matters is how the financing costs compare to the nominal increases.
The lenders are the ones likely to fair worst in this scenario as their loans get paid back in money worth less in real terms.

Freddy

I didn’t want to go into too much detail and cover every scenario. But yes, pretty much if you can keep up with repayments then much like the baby boomers in the 80s you end up with a partial debt jubilee by way of paying the mortgage off in a fraction of the time… which will ironically turn all the people who hate baby boomers into the same greedy fuckers that will use the opportunity to buy multiple houses and screw over the next generations in the same way.

I don’t agree that lenders (as in banks) will get screwed over. I had this discussion with Peachy a few weeks ago. The balance sheet will expand as wages rises, and as rates rise they also take a bigger clip of the ticket. . i.e. larger difference between mortgage rate and funding cost

Depositors on the other hand will cop a reaming on their savings offset by cheaper housing relative to wages.

Last edited 18 days ago by Freddy
Coming

to be fair to DLS, he called it for all the wrong reasons (ie iron ore $30)

even when he’s right its by accident

emusplatt

be long real estate….still

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